Kinder Morgan to Buy 49% of Elba LNG Liquefaction Project - Analyst Blog
Kinder Morgan, Inc. KMI has reached an agreement with Royal Dutch Shell, plc (RDS.A) to acquire the 49% equity interest held by the latter in Elba Liquefaction Company, LLC ("ELC").
Notably, ELC is the owner of the Elba Liquefaction Project, which is currently in talks for being constructed and operated at the existing Elba Island LNG Terminal near Savannah, GA. Currently, Kinder Morgan holds 51% of the ELC joint venture, while the remaining 49% is owned by Royal Dutch Shell. Royal Dutch Shell has also subscribed to 100% of the liquefaction capacity.
With Kinder Morgan’s purchase of Royal Dutch Shell’s share, the incremental investment by the company will be about $630 million. This will take the total additional investment in all the liquefaction and terminal facilities at Elba Island to about $2.1 billion.
The Elba Liquefaction Project, which includes 10 small-scale liquefaction units to be procured from Royal Dutch Shell, still struggles with sanction issues. The project will be integrated with the existing Elba Island facility and enable rapid construction compared to traditional large-scale plants.
Permitting for the proposed Elba Liquefaction Project is in progress. This includes 10 small-scale liquefaction units to be bought from Shell. These new units will be added to the current Elba Island facility to help speed up the construction than traditional large-scale plants. The issuance of a draft environmental assessment by the Federal Energy Regulatory Commission will be the next step in the regulatory approval process.
Subject to regulatory approvals, construction is anticipated to commence in the fourth quarter of 2015. Initial production is expected by late 2017.
Post completion, the Elba Liquefaction Project is estimated to have a total capacity of about 2.5 million tons per year for LNG export. This corresponds to about 350,000 million cubic feet per day of natural gas. The project received sanction from the Department of Energy to export to Free Trade Agreement ("FTA") countries in 2012, while an application to export to non-FTA is pending.
Currently, Kinder Morgan carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same space include Enbridge Energy Partners L.P. EEP, EQT Midstream Partners L.P. EQM and Cheniere Energy, Inc. LNG. All these stocks sport a Zacks Rank #1 (Strong Buy).
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